TCS Q2 Results: Digital transformation deals, AI projects drive revenue
India’s largest IT services firm, Tata Consultancy Services (TCS), reported its financial results for the second quarter of FY25. While the company continued to face cautious spending patterns, a trend seen in recent quarters, the company saw strong digital transformation deals driven by increased investments in segments like artificial intelligence (AI), cybersecurity, and cloud solutions.
TCS CEO K. Krithivasan noted that the cautious trends seen over the last few quarters persisted in Q2, influenced by ongoing geopolitical uncertainty.
The company posted a 5% rise in its consolidated net profit for the second quarter of fiscal year 2025, which ended in September. The company's net profit reached ₹11,909 crore, up from ₹11,342 crore in the same period last year. However, this result was slightly below market expectations, as analysts had forecast a profit of ₹12,450 crore.
TCS also reported an 8% year-on-year increase in revenue, which stood at ₹64,259 crore for the quarter, driven by growth across several sectors.
Digital transformation deal wins
In Q2, TCS reported several large deals dominated by the retail sector, including deal wins from Primark, McDonald’s, and Croma. Most of these deals were digital and business transformation-related, unlike the expected trend of cost efficiency and vendor consolidation deals, giving hope for transformation deals to return and customers to open up tech spending.
According to a report by ICICI Securities, TCS saw a higher number of large deal announcements in Q2 (>2x of Q1FY25). There was increased traction in the retail vertical for TCS, coming from deals like Primark, McDonald's, and Croma, continuing the sequential growth in the vertical from the last two quarters.
In recent quarters, TCS has been reporting strong growth in the Indian market driven by revenue from the ₹15,000-crore BSNL deal.
Despite global uncertainties, especially in the geopolitical sphere, the company’s largest vertical, Banking, Financial Services, and Insurance (BFSI), showed signs of recovery. Growth for the company during the quarter was led by energy, resources, and utilities along with the manufacturing business.
Cybersecurity also witnessed growth as clients sought to enhance their security frameworks, especially in governance, risk and compliance, vulnerability management, and cloud security. Additionally, TCS Interactive, which focuses on customer experience and digital transformation, reported improved spending as clients looked to leverage data and technology for better returns on their marketing investments.
Krithivasan stated that the company aims to “stay focused on sharpening our value proposition to our clients, employees, and other stakeholders”.
Gen AI — A sweet spot
Despite the current market headwinds, Gen AI remains a bright spot, with customers reallocating tech budgets for early experimentation and proof of concepts (PoCs).
TCS is one of the two IT giants that has been reporting its Gen AI pipeline numbers; the other being Accenture, which ended FY24 with Gen AI order inflows of $3 billion and $900 million in revenue.
TCS reported strong demand in areas such as AI, with over 600 AI and Generative AI engagements deployed or in development. Its AI and Gen AI pipeline in Q1 stood at $1.5 billion, and the company was executing over 270 AI projects.
Increase in headcount
During the quarter, there was a net headcount attrition of 5,726 with an attrition rate of 12.3%. This was the second quarter in a row that the headcount went up after declining for three straight quarters. The company added 5,452 employees sequentially in the June quarter, bringing the total number of employees to 6,12,724.
“We welcomed 11,000 associates in the first half of the year, and we remain on track for trainee onboarding as planned. We have also commenced the campus hiring process for FY26. Our strong talent base and increased learning intensity prepare us well for the complex technology transformations that customers entrust us with," said chief human resources officer Milind Lakkad. TCS has also declared an interim dividend of ₹10 per share.
Biswajit Maity, Senior Principal Analyst at Gartner, said that TCS's 2.6% quarter-over-quarter growth amid macroeconomic challenges, is attributed to its strategic vision, execution, consulting expertise, and customer focus. “TCS will continue to be a key partner for clients, as its strategy aligns with both market expectations and clients’ digital transformation goals,” said Maity, adding that the new CEO's focus on client-centricity has invigorated the organization. Additionally, Gartner raised its Q2 2024 IT spending forecast from 7.6% to 8.9%, indicating rising costs in servers, devices, and software, and expressing confidence in TCS's growth momentum.
TCS did not hold a press conference due to the demise of Tata Group Chairman Emeritus Ratan Tata.